Information Services Group, Inc.

Good morning and welcome everyone to the Information Services Group fourth quarter 2023 conference call. This call is being recorded and a replay will be available on ISG's website within 24 hours. Now I'd like to turn the call over to Mr. Barry Holt for his opening remarks and introductions. Mr. Holt, please go ahead.

Thank you, operator. Hello, good morning. My name is Barry Holt. I'm a senior communications executive at ISG. I'd like to welcome everyone to ISG's fourth quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Michael Sherrick, Executive Vice President and Chief Financial Officer. Before we begin, I'd like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guaranteed of future results and are subject to certain risks and uncertainties. that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8K that was furnished last night to the SEC and the risk factor section in ISG's Form 10K covering full-year results. You should also read ISG's annual report on Form 10K and any other relevant documents, including any amendments or supplements to these documents filed with the SEC. you'll be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-1.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures, which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures which we will touch on today include adjusted EBITDA, adjusted net earnings, and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided in additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, Please refer to our current report on Form 8K, which was filed last night with the SEC. And now, I'd like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Michael?

Michael Connors Thank you, Barry, and good morning, everyone. Today, we will review our results for the fourth quarter and full year, including our recurring revenue growth and our strong Q4 cash generation. Our investments in two growth initiatives, enterprise AI and next generation sourcing. and the current demand environment and our outlook for the first quarter. Although our fourth quarter was soft, 2023 was largely a successful year for ISG. We grew our top line 2% in an industry that was down 6% last year. We advanced our recurring revenues by 16%, and we invested in two growth areas, enterprise AI and next-gen sourcing. For the full year, ISG delivered record revenues of $291 million. Given the overall IT and business services industry was down 6% last year, as reported by the ISG index in January, we consider our top-line growth of 2% to be solid. Our strategic investments in recurring revenue streams continue to pay off. For the year, we generated record recurring revenues of $125 million, up 16%, driven by our research and ISG platform businesses. Recurring revenue represents 43% of our total firm-wide revenue, up 500 basis points from the prior year. Our Q4 results, 66 million of revenues and adjusted EBITDA of 6 million, were impacted by slower client decision-making due to the uncertain macro environment as well as the advent of AI, which is extending sales cycles. More on that latter point in a moment. During Q4, we saw growth in our research platforms and software advisory businesses, and in our consumer services and public sector industries. Recurring revenue represented 45% of our total firm-wide revenue for the quarter. We also generated nearly $10 million of cash in the fourth quarter, the highest amount to end the year since 2019. Now, a further word on the demand environment. It's easy to understand how current macro conditions are impacting client decision-making. What's less evident is the impact of AI on the market. And we have seen this before, most recently with the advent of cloud computing. It takes a while for the market to adjust to a major new technology. For many enterprises, knowing how to apply and govern AI is a challenge. They need time to understand the practical applications and see the potential for ROI before they go all in. Much of the hype today is around generative AI, but other forms of AI are already taking root. Clients are asking us to embed AI in almost all of our sourcing transactions. in areas such as AI ops and AI-enabled applications. They are also seeking data and AI capabilities to experiment. To take full advantage of AI, however, our clients need to see the big picture and create a strategic plan for adopting AI at scale. And this is where ISG comes in. ISG launched a new enterprise AI advisory business at the start of this year to guide clients through the intricate maze of AI adoption. We brought together our trusted experience in technology sourcing, our deep expertise in AI, and our broad access to the provider ecosystem to create a new and unique approach to sourcing AI. Clients are relying on our experts to establish their AI strategy. set guard rails, identify use cases, and build their AI ecosystem. And to ensure we are capturing new opportunities, we have skilled up our workforce, training and certifying more than 1,200 of our employees in enterprise AI during the fourth quarter. Demand for AI and digital transformation is growing. Our pipeline, though slower to close, is 14 percent larger now than it was last year. Our other key investment is in our new sourcing platform. Yesterday, we announced the launch and availability of ISG Tango, the first fully integrated digital platform designed to simplify and expedite sourcing. ISG Tango is the result of a year-long development effort. It digitizes all elements of ISG FutureSource, the industry's most respected sourcing process and methodology, from initial service scope to provider selection to contract creation and signature. The new platform leverages ISG's market-leading transaction data, provider evaluations and market insights, and includes a virtual deal room to secure document exchange and user interaction. Powered by AI, ISG Tango also automates contract creation and provides real-time predictive insights to streamline the entire transaction process and accelerate time to value. Because of its ability to scale, ISG Tango will allow us to capture more unadvised transaction activity over the next few years among our current G2000 clients. And for the first time, it will allow us to penetrate the underserved mid-market, which spends about $130 billion on technology and business services annually, most of it through unadvised transactions. This is an exciting new development for ISG. We expect ISG Tango to help us expand our margins in line with our other elements of our ISG Next operating model. Now, turning to our regions. The Americas delivered $40 million of revenue in the quarter, down 8% versus the prior year. For the full year, revenues were $173 million, up 4%. During Q4, we saw double-digit growth in our consumer, public sector, energy, and utilities industry verticals. And among our services, research was also up double digits. Key client engagements during the fourth quarter included Centene, U.S. Steel, Carnival, and Safelite. During the quarter, a global hospitality and entertainment company awarded ISG a strategically important data analytics and AI engagement. Our work will help this client leverage recent advances in AI to support personalized marketing and optimize their operations. We were also selected by a U.S. state government to support an upcoming implementation of a new statewide ERP system for finance and procurement. Turning to Europe, our Q4 revenues of $20 million were down 15% from last year. For the full year, revenues were flat at $90 million. During the quarter, Europe delivered double-digit revenue growth in our banking industry vertical and in our network and software advisory business. Key client engagements in Europe in the fourth quarter included the financial services firm IQEQ, Nestle, Volkswagen, and Deutsche Bahn. In the fourth quarter, we expanded our already robust relationship with a European CPG company by delivering a nearly $2 million software advisory engagement. We helped this client renegotiate its worldwide contracts with SAP, Microsoft, DocuSign, and Adobe at a savings of more than $10 million, and we began an assessment of the company's procurement and vendor management organization to generate ongoing sustainable savings. Now turning to Asia Pacific, our Q4 revenues of $6 million were down 12%. For the full year, they were down 5% to $28 million. In the fourth quarter, we saw double-digit growth in our banking and manufacturing industry verticals. Key clients in the quarter included the Australian Taxation Office, the Department of Home Affairs, CBH Group, and Insurance Australia Group. In Q4, ISG delivered a sourcing advisory and software negotiation support to a leader in the Australian grain industry for its transformation journey from legacy SAP to S4 HANA. Now let me turn to guidance. We expect the market to accelerate over the course of this year. As inflation continues to cool, Central banks respond, and clients become more comfortable with AI decision-making. With this in mind, for the first quarter, we are targeting revenues between $65 and $67 million, and adjusted EBITDA between $6 and $7 million. I would point out that we will face a difficult comp with our record first quarter last year. Based on our next two-year business plan and in anticipation of accelerating demand, and the margin impact we expect from ISG Tango. We remain committed to driving toward our target of a 17% adjusted EBITDA margin for the firm by the end of 2025. So with that, let me turn the call over to Michael, who will summarize our financial results.